Rating Action Overview

• French toll road operator Sanef directly manages 1,779 kilometers of a mature and resilient network in France under a supportive regulatory framework. Holding d'Infrastructures de Transport S.A.S (HIT) is the holding company of Sanef. Therefore, we assess their stand-alone creditworthiness on a combined basis.
• Their 'a-' stand-alone credit profiles are constrained by their more-leveraged parent Abertis Infraestructuras (BBB/Stable/A-2), a Spain-based toll road network operator with global presence. Sanef is Abertis' single largest contributor of EBITDA (about 33% in 2018) and plays an integral role in the group's strategy.
• We are assigning our 'BBB' long-term issuer credit rating to Sanef and 'BBB/A-2' long- and short-term issuer credit ratings to HIT. We are also assigning a 'BBB' issue rating to HIT's senior unsecured debt.
• The stable outlook on HIT and Sanef mirrors that on their parent company, Abertis.

Rating Action Rationale

The ratings on HIT and Sanef reflect those on their ultimate parent, the Spain-based global toll road operator Abertis Infraestructuras. In our view, Sanef's French toll road assets play an integral strategic role for Abertis, which acquired full ownership of HIT in 2017 to partially mitigate the expiration of the dividend stream from the Spanish concessions Acesa in 2021 and Aumar in 2019. We therefore equalize our long-term issuer ratings on HIT and Sanef with our long-term issuer rating on Abertis, although we see these subsidiaries as having stronger creditworthiness than their parent on a stand-alone basis. In the hypothetical scenario that these entities' creditworthiness declines below our rating on Abertis, we would continue to equalize the subsidiary ratings with that on Abertis as we see strong incentives from the parent to support them, given their key strategic role within the Abertis group.

Sanef is the single largest EBITDA and dividend contributor to Abertis. In 2018, its EBITDA was €1.2 billion, representing about 33% of the group's total EBITDA, and it contributed €800 million cash dividends to the parent.

The full acquisition of HIT in 2017 has extended the average life of Abertis' portfolio as Sanef concessions mature in December 2031 (1,406 kilometers [km]) and August 2033 (373 km, managed through SAPN).

Furthermore, the operation of mature toll road assets in France with a strong credit profile mitigates Abertis' exposure to its Latin American subsidiaries (mainly in Chile and Brazil) that provide geographical diversification but expose the group to these countries' soft currencies. The credit quality of Abertis caps the ratings on HIT and Sanef.

On a stand-alone basis, we view HIT and Sanef combined as having stronger creditworthiness than Abertis, and we assess their stand-alone credit profile (SACP) as 'a-'. We consider that HIT and Sanef demonstrate resilient operational and financial performance, supported by the mature and resilient nature of toll road networks in France as well as favorable concession agreements. The concession contracts allow for full recovery of the capital investment, and tariffs are linked to inflation. The relatively recent motorway investment and stimulus plan imposed by the French government increased capital expenditure (capex) for the toll road operators, but provide compensation both through tariff increases and the extension of concession contracts. Sanef also has a long operating history, generates solid and stable cash flows, and has very strong operating efficiency achieved through tight cost controls and continuous efficiency efforts. As a result, Sanef and HIT combined benefits from stable profitability, with a gradually improving S&P Global Ratings-adjusted EBITDA margin of 71%-73%.

We forecast Sanef and HIT's combined weighted-average funds from operations (FFO) to debt at 15%-17% in 2019-2020. We do not see any specific ring-fencing protections between Sanef and Abertis, since the concession agreement does not set any constraints on payout policies to the parent, allowing the parent to extract extraordinary dividends. Having said that, we understand the current facilities in place have financial covenants that limit the leverage at Sanef level.

Outlook

The stable outlook on HIT and Sanef mirrors that on Abertis. Any change in the ratings on Abertis would result in a corresponding rating action on HIT and Sanef, as long as we continue to see them as core to the group. Taking into account the integral strategic importance of these companies to Abertis, we do not expect this assessment to change over the outlook horizon. Furthermore, we do not see the entities as insulated from the parent, as the concession agreement does not set any constraints on the parent's financial policies.

The stable outlook on Abertis reflects our expectation that Abertis will maintain its weighted-average ratio of FFO to debt at 11%-12% over 2019-2020. The effect of the acquisition debt (related to Abertis' acquisition by Atlantia) is mitigated by the €2.7 billion proceeds from the disposals of Abertis' stakes in noncore assets Cellnex (completed) and Hispasat (expected to close in 2019). Furthermore, we anticipate strong growth in Abertis' core toll road concessions, as well as some resulting synergies with Atlantia, especially in Italy and Latin America.

The outlook also reflects that, despite the risks associated with Atlantia's subsidiary Autostrade Per L'Italia, we do not currently foresee the ratings on Abertis' majority shareholder Atlantia falling below investment grade (see "Atlantia Ratings Placed On CreditWatch Negative On Heightened Downside Risk From ASPI Concession," published July 11, 2019). We could rate Abertis up to two notches above the rating on Atlantia based on protections related to significant minority interests, the non-recourse nature of the financing, and the shareholders' agreement to protect Abertis' credit quality at the 'BBB' level.

Downside scenario

We would lower our ratings on HIT and Sanef if we took a similar rating action on Abertis.

We could lower the ratings on Abertis if its core credit metrics were to deteriorate continuously below 12% following the takeover of Abertis by Atlantia. This could occur if, for example, Abertis ends up paying higher dividends or its capex is more aggressive than in our base case. To a lesser extent, some downside could arise if the synergies do not materialize. We could also consider lowering the ratings if the pressure on credit ratios is not sufficiently mitigated in a timely way by the agreed contingent shareholder support.

Upside scenario

We could raise our ratings on HIT and Sanef if we took a similar rating action on Abertis. But, given the significant leverage of the consolidated Abertis group, we see prospects for a higher rating on Abertis as limited at this stage.

Company Description

HIT is the holding company of the French toll road operator Sanef, its only and fully owned subsidiary.

Sanef is the third-largest toll road operator in France (1,779 km of roads directly managed), behind Autoroutes du Sud de la France S.A. (3,200 km, fully owned by Vinci SA) and APRR S.A. (2,318 km, owned by Eiffarie, jointly controlled by Eiffage SA and Macquarie Autoroutes de France SAS).

Sanef's main concession covers about 1,406 km of toll roads in the north and east of France. It expires in December 2031. Sanef also has a concession to operate 373 km of toll roads in the northwest of France through its subsidiary SAPN (99.97% ownership) until August 2033. Overall, the network includes key French traffic routes, including five out of seven access routes into Paris, links to other major surrounding cities (Strasbourg, Frankfurt, Brussels, and London), five major ports (Le Havre, Dunkerque, Calais, Rouen, and Boulogne-Sur-Mer), as well as the connections to the Eurotunnel terminal and the Charles de Gaulle airport.

Minority stakes in other concessions (19.7% in Alis-A28; 35% in the Alienor–A65, Leonord, and Lyon bypass) increase the total network directly and indirectly operated to 2,063 km. Other group activities include tags for light vehicles and service areas operations (about 5% of total revenues).

HIT was set up in 2005 as a consortium of investors to acquire Sanef's shares following the tender offer by the French government. HIT was successful and became Sanef's effective owner in February 2006. As of today, the sole shareholder of HIT is Abertis Infraestructuras, following the progressive buy-out of minority stakes in HIT in 2017.

Our Base-Case Scenario

Our base-case operating scenario over 2019-2020 assumes:

• Traffic growth of 1.4%-1.5% in 2019 and 2020, in line with our French GDP forecasts.
• Tariff increase of 1.3% per year, calculated under the contracted formula, based on our expectation of 1.4%-1.3% consumer price index inflation in France.
• Overall total revenues increasing by a low-single-digit percentage.
• The adjusted EBITDA margin increasing toward 73% in the next few years from 71% in 2018, supported by the implementation of a third efficiency plan, focused on further optimizing the collection mechanism and rationalization of operating costs.
• Capex of €200 million-€300 million in 2019 and 2020, which includes investments under Sanef's Plan de Relance Autoroutier and Plan d'Investissement Autoroutier.
• Dividends of about €400 million-€450 million per year, in line with the dividend policy to distribute the previous year's net income in full.

Based on these assumptions we forecast the following metrics:

• Adjusted FFO to debt of 15%-17% in 2019 and 17%-19% in 2020.
• Adjusted debt to EBITDA of 4.0x-4.5x in 2019 and 3.5x-4.0x in 2020.

Liquidity

We assess HIT and Sanef's combined liquidity position as strong, based on our forecast that sources will cover uses by over 1.5x over the next 12 months and by above 1.0x in the following 12 months. Our assessment is also supported by group's solid relationship with banks and generally prudent risk management.

We anticipate the following principal liquidity sources for the 12 months from March 31, 2019

• Unrestricted cash and liquid investments of €618 million;
• FFO of €800 million-€830 million, according to our forecasts; and
• Undrawn bank lines with maturity of at least 12 months totaling €550 million.

We anticipate the following principal liquidity uses for the same period:

• Debt maturities of €300 million;
• Working capital outflows of about €20 million;
• Capital spending of €260 million; and
• Dividend payments of about €400 million-€450 million.

Covenants

HIT's financial debt (€2.8 billion) is covenant-free, while some of Sanef's facilities include financial covenants that require a reduction in leverage levels. These covenants calculations exclude HIT's indebtedness. Sanef was compliant with its covenants in 2018. We expect the company to maintain comfortable headroom under its covenants in the forecast period.

Issue Ratings - Subordination Risk Analysis

Capital structure

As of Dec. 31, 2018, HIT and Sanef's capital structure consisted of about €5.8 billion of unsecured debt, of which HIT issued €3.0 billion and Sanef raised €2.8 billion.

Analytical conclusions

• The priority debt ratio is slightly below 50%.
• We therefore rate HIT's unsecured debt at 'BBB', in line with the issuer credit rating.

We expect the priority debt ratio not to increase above 50%. This reflects Sanef's deleveraging path and its restriction to leverage under its current debt documentation. Hence, we anticipate that any additional funding will be raised by HIT.

Ratings Score Snapshot

Issuer credit rating: BBB/Stable/A-2

Business risk: Excellent

• Country risk: Low
• Industry risk: Low
• Competitive position: Excellent

Financial risk: Intermediate

• Cash flow/leverage: Intermediate

Anchor: a

Modifiers

• Diversification/portfolio effect: Neutral (no impact)
• Capital structure: Neutral (no impact)
• Financial policy: Neutral (no impact)
• Liquidity: Strong (no impact)
• Management and governance: Satisfactory (no impact)
• Comparable rating analysis: Negative (-1 notch)

Stand-alone credit profile: a-

• Group credit profile: bbb
• Entity status within group: Core (-2 notches from SACP)

Related Criteria

• Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
• Criteria | Corporates | General: Reflecting Subordination Risk In Corporate Issue Ratings, March 28, 2018
• General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
• Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
• General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
• Criteria | Corporates | Industrials: Key Credit Factors For The Transportation Infrastructure Industry, Nov. 19, 2013
• Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
• General Criteria: Group Rating Methodology, Nov. 19, 2013
• General Criteria: Methodology: Industry Risk, Nov. 19, 2013
• General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities, Nov. 13, 2012
• General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
• General Criteria: Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010
• General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009

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